The property/casualty industry is expected to ultimately incur more than $121 billion in net asbestos and environmental losses, according to the special report, “Largest Increase in A&E Losses to Date Seen in 2001,” recently released by A.M. Best Co.
Ultimately, asbestos losses are expected to reach $65 billion, while
environmental losses are expected to reach $56 billion, based on A.M.
Best’s proprietary data when combined with data disclosed under the
National Association of Insurance Commissioners’ Footnote 29 reporting requirements for year-end 2001.
A number of high-profile, asbestos-related actions have been taken by both insurers and U.S. industry thus far in 2002. In May, PPG Industries announced a tentative settlement of $2.7 billion, before taxes and discounting, for all current and future asbestos claims related to its 50 percent ownership in the bankrupt Pittsburgh Corning affiliate. More than 30 insurers are expected to fund two-thirds of this settlement, with Travelers
Property Casualty Group taking a $240 million share; Hartford Insurance Group taking a $120 million to $150 million share, and Chubb Group of Insurance Cos. taking a $34 million share, all after tax.
In July, St. Paul Cos. announced a $1.0 billion settlement in a suit
against its USF&G subsidiary that insured Western MacArthur Cos., incurringa $585 million pretax loss in 2002.
Other key findings for 2001 in the report include:
*Of the total $4.4 billion in asbestos and environmental incurred
losses, nearly $4.1 billion was related to asbestos exposures alone.
*Overall asbestos and environmental payouts increased 2%, reversing a two-year decline.
Until recently, the “Manville model” was the only practical response
to the growing number of claims. The model, based on the Johns-Manville bankruptcy in 1982, was to file for bankruptcy, set up a trust fund and then attempt to emerge from bankruptcy at the other end. However, several new approaches for mitigating potential losses have been developed in response to the continuing claims:
*Babcock & Wilcox, which filed for bankruptcy protection in 2000, is
challenging the validity and value of asbestos claims in the court system. W.R. Grace & Co. and USG Corp. also are using this method to help identify valid asbestos claims.
*Honeywell International and Halliburton are attaching asbestos claims to companies already in Chapter 11.
*CSX Transportation, Norfolk Southern Railway and Conrail have
reportedly persuaded the U.S. Supreme Court to hear arguments against paying otherwise-healthy claimants who are worried about getting asbestos-related illnesses.
*Insurers have begun to tighten their claims documentation
requirements by requiring a minimum level of proof before making payments.
Still, A.M. Best’s outlook for the insurance industry’s exposure to
accelerating asbestos losses remains negative, based on the belief that the industry’s unfunded asbestos position is roughly $28 billion and its unfunded environmental exposures at approximately $25 billion.
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